It’s no secret that courts are highly protective of employee rights, and that while the pendulum tends to swing back and forth over time, we are currently in a pro-employee era with an apparent open season on termination clauses.
If you were wondering how our courts would find the next way to invalidate a termination clause, you can stop wondering: a recent unpublished decision of the Ontario Superior Court of Justice determined that simply saying that the employer can implement a without cause dismissal at its “sole discretion” and “at any time” is sufficient.
The Township may at its sole discretion and without cause, terminate this Agreement and the Employee’s employment thereunder at any time upon giving to the Employee written notice as follows.
This type of clause has been found to be unenforceable.
Surprised? Concerned because your contracts (like many) contain such wording? You’re not alone.
Why “sole discretion” and “at any time” are offside
In Dufault v the Corporation of the Township of Ignace, 2024 ONSC 1029 (“Dufault”), the Court found that the termination clauses in a fixed-term employment contract were invalid for breaching the Employment Standards Act, 2000 (“the ESA”). Notably, the Court agreed with the novel argument that the without cause provision violated the Act by giving the employer the ability to dismiss the employee at its “sole discretion” and “at any time”. The employer was ordered to pay the employee the balance of the contract’s term.
Interestingly, in Dufault, the Courthad already found the termination for cause provision violated the Act, in line with prior jurisprudence, so the Court did not have to address this issue. Nonetheless, the Court found that it breached the ESA by allowing the employer to dismiss the employee at any time, because the ESA prohibits dismissals at certain times. For example, the ESA prohibits dismissing an employee as a reprisal for enforcing their rights under the Act. While this argument could be seen as a reach, it is not too surprising that the Court agreed with it given recent trends.
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Indeed, Dufault builds on a body of case law that trends towards finding reasons to invalidate termination clauses. This trend began with Waksdale, which holds that employment agreements must be interpreted as a whole; an invalid termination provision will render the whole termination clause unenforceable. We wrote about Waksdale in detail on our blog. Following Waksdale, employment contracts with termination clauses that lowered the standard for termination without giving any notice were made unenforceable.
Later cases built on Waksdale and looked beyond termination clauses, going on to scrutinize ancillary provisions. The Superior Court of Justice decision of Henderson v Slavkin (“Henderson”) is one such key case. In Henderson, an otherwise permissible termination clause was ruled unenforceable because the contract’s confidentiality and conflict of interest provisions stated that breach of either provision constituted grounds to terminate employment for cause, and without notice. The Court held that this breached the ESA and rendered the termination clause invalid. We wrote about the impact of this decision here.
In Dufault, we see the attack on termination clauses continue. There is a clear trend that courts are open to finding reasons to invalidate termination clauses even when there is no obvious abrogation of the ESA, such as a provision that disentitles employees from their statutory minimums.
Impact on termination clauses moving forward
Dufault is a trial decision, which means it is not binding on other courts. There are prior cases that seem to have reached different conclusions, although the termination clauses in these other cases were not identical to that in Dufault.
Everyone, both employers and employees, should review their contracts.
Even if Dufault is not followed, it is indicative of courts’ willingness to scrutinize employment contracts for any potential ESA breaches. Employment law is evolving at a rapid pace – an otherwise enforceable contract today may not be enforceable in a few months.
If you are an employer, it is critical that you have your employment agreements reviewed for any similar language, and have them updated regularly. If you are an employee and have been dismissed, the termination clause in your contract may be newly vulnerable to challenge. As always, we are available to provide you with proactive, strategic advice for your employment law needs. You can contact us here.